IDEAS home Printed from https://ideas.repec.org/p/cpr/ceprdp/19719.html

From Labor to Intermediates: Firm Growth, Input Substitution, and Monopsony

Author

Listed:
  • Mertens, Matthias
  • Schoefer, Benjamin

Abstract

We document and dissect a stylized fact about firm growth: the shift from labor to intermediate inputs. This shift occurs in input quantities, cost and output shares, and output elasticities. We establish this regularity in firm data for Germany and in firm (and industry) data for 11 (20) additional countries, and also in response to exogenous product demand shocks. We explain this regularity through a parsimonious model with two features: (i) an elasticity of substitution between intermediates and labor above one, and (ii) an increasing shadow price of labor (monopsony or adjustment costs). Our firm growth regressions identify a labor-intermediates substitution elasticity between 1.8 and 4.2. Labor-intermediates substitution also accounts for much of the labor share decline that we document accompanies firm and industry growth.

Suggested Citation

  • Mertens, Matthias & Schoefer, Benjamin, 2024. "From Labor to Intermediates: Firm Growth, Input Substitution, and Monopsony," CEPR Discussion Papers 19719, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:19719
    as

    Download full text from publisher

    File URL: https://cepr.org/publications/DP19719
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rubens, Michael & Wu, Yingjie & Xu, Mingzhi, 2025. "Estimating factor price markdowns using production models," International Journal of Industrial Organization, Elsevier, vol. 102(C).
    2. Fabrizio Leone, 2026. "Foreign acquisitions, automation and labour share," Temi di discussione (Economic working papers) 1539, Bank of Italy, Economic Research and International Relations Area.
    3. Rafael Guntin & Federico Kochen, 2025. "The Origins of Top Firms," Working Papers wp2025_2516, CEMFI.

    More about this item

    JEL classification:

    • J00 - Labor and Demographic Economics - - General - - - General
    • L00 - Industrial Organization - - General - - - General
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:19719. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CEPR (email available below). General contact details of provider: https://cepr.org/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.